Every time China produces a new download of economic numbers, it prompts the same question outside the country: do we believe them?

Earlier this year, the suspicion was that growth numbers had been “smoothed” to conceal a recession. Now, after China announced that its economy had grown by 8.9 per cent in real terms over the past 12 months, the suspicion is that this is an understatement.

London’s Lombard Street Research, for example, reckoned that China’s economy grew 7.5 per cent (a 30 per cent annualised rate) in the third quarter, having contracted in the fourth quarter of last year.

The data disappointed investors, with relatively risky assets losing value on Thursday. But they still help to explain the growing concern over currencies.

Since 1989 (the year of the Tiananmen Square massacre), China’s growth rate has never dipped below 6 per cent. The 1990s boom was achieved with the aid of a big devaluation. After the currency was allowed to rise 21 per cent against the dollar in three years from 2005, the peg came back just as China’s growth began to fall. The renminbi remains 15 per cent cheaper against the dollar than it was in 1993.

With the dollar falling, that peg has seen China devalue significantly against other countries – by 17 per cent against the euro since last November, by 16.7 per cent against the yen since last August and by 30 per cent against the Brazilian real since last December (although it is still not as cheap against the real as it was last summer).

Many, if not most, hopes for global recovery are pinned on China buying goods from countries such as Brazil. Commodity prices, a key driver of equities and forex rates, also move in response to the new orders received by China’s manufacturers.

This currency regime makes it far harder for such countries to sell to China. So it is no wonder that currencies are back at the top of the agenda.



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